The Week Ahead: Bracing for the Storm

Earnings season is normally a busy period, but the current one is likely filling at least some investors with stress, as a greater percentage of companies have missed expectations and revised outlooks downward. Of the more than 1,200 companies that shared quarterly results last week, the market was weighed by noteworthy announcements from Caterpillar (CAT), 3M (MMM), Netflix (NFLX), Deckers (DECK), VeriSign (VRSN) and Apple (AAPL). A number of positive announcements were seen from Facebook (FB), which appears to be getting its mobile house in order; Broadcom (BRCM), which is benefitting from the increasing shift toward mobility; and Coach (COH), among others.

Although last week's economic data came in relatively light, we did receive the latest durable-orders report, as well as the initial gross domestic product reading for the third quarter. The headline numbers on both were favorable, though sifting through the data reveals that both reports benefited from stronger-than-expected government/defense and lumpy transportation spending. Adjusted for those factors, the data continue to point to a modest recovery. That has prompted the return of job cuts from the likes of DuPont (DD), Newell Rubbermaid (NWL), Colgate-Palmolive (CL) and Advanced Micro Devices (AMD), to name a few.

The net effect of earnings and economic results led to a 1.5% drop for the S&P 500 and more modest fall of 0.6% for the Nasdaq CompositeIndex last week.

Based on the preponderance of headlines, an investor may conclude there are few to no areas in which they should be involved. But, as we know, there is always a bull market out there somewhere; we just have to find it and understand how to trade or invest in it. One set of investments that fared well last week were the market inverse ETFs, such as ProShares Short Dow 30 (DOG) and ProShares Short S&P 500 (SH). These respectively rose 1.6% and 1.4% last week as the S&P 500 and Dow Jones Industrial Average saw declines.

While inverse ETFs are not everyone's cup of tea, more aggressive investors would have made out even better by trading leveraged, inverse ETFs such as ProShares UltraShort Dow 30 (DXD) and ProShares UltraShort S&P 500 (SDS). These correspond to twice the inverse performance of their respective market indices.

With more than 900 companies scheduled to report their quarterly results this week, the earnings fun stands to continue. Adding to "fun" will be Hurricane Sandy, which the East Coast is bracing for, and which is expected to cause severe damage.

Book-ending that will be the October employment report at the end of the week. This will be the last major economic report before Election Day, so it stands to be scrutinized even more closely than usual. Despite slower nonfarm job creation compared with that in July and August, the September jobs number showed a dip in the unemployment rate, which served to highlight issues surrounding the housing survey's methodology. Current consensus expectations call for 125,000 nonfarm payrolls to be added in October, with the unemployment rate expected to tick up to 7.9% from September's 7.8%.

Here's a more granular look at what investors should be watching and listening to over the next five trading days.